Regulators in New York and the federal government are expanding their investigations into the insurance industry to include certain sales of investments that produce new commissions for sales representatives but can be harmful to customers.

The new avenue in the inquiries, according to regulators, involves so-called churning, or the unnecessary replacement, of old variable annuities with new ones. Variable annuities are a combination of insurance and stock and bond funds virtually identical to mutual funds. Churning can cost the customer up to 7 percent of an investment, increase restrictions on future withdrawals and, in some cases, add to taxes, investigators say.

Regulators have added the churning inquiry to their investigations of securities trading in variable annuities by hedge funds and wealthy individuals, who investigators say used "market timing" to make frequent trades on terms generally not available to smaller investors. Market timing is not necessarily illegal, but regulators contend it can be fraudulently abused and short-change smaller investors.

Regulators in New York and in Washington have grown concerned about variable annuity sales because industry data indicate that perhaps more than half of the new annuities sold in recent years have been replacements of old variable annuities.

Insurance industry executives defend the practice by saying the new annuities have features that were not included in older versions and that investors can benefit. But analysts and regulators say the transactions, which produce new commissions for the sellers, lead to new fees for customers and new restrictions that can be costly for investors.

"The sheer number of these exchanges is extremely troubling," David D. Brown IV, the head of the investment protection bureau of the New York state attorney general's office, said in an interview yesterday.

The second-highest ranking enforcement official at NASD, the regulatory arm of the brokerage industry, in a separate interview, echoed the concern.

"We think there is a fair amount of improper activity," in the sale of replacement variable annuities, the official, James S. Shorris, said. Concerns about various improprieties in variable annuities, he said, "are a big focus for us."

Herb Perone, a spokesman for the Securities and Exchange Commission, said his agency regarded the sale of variable annuities as fraught with regulatory risks and was examining a number of companies "to determine whether exchanges were appropriate for customers."

Deborah Tucker, a spokeswoman for the National Association for Variable Annuities, a trade group, acknowledged that "a considerable amount" of the sales of variable annuities had been coming from the replacement of old annuities with newer ones. But she said the group did not believe that improper sales were widespread.

"We see selected instances," she said, "but that does not mean that it is being done to a great extent throughout the industry. The industry takes seriously the issue of sales practices and supports the regulators in the investigation of unethical practices."

In the most striking accusation of improper sales, NASD said in mid-January that a unit of Waddell & Reed Financial, a midsize brokerage firm and mutual fund company, persuaded 6,700 owners of variable annuities to switch to similar investments, resulting in nearly $10 million in extra costs for customers and $37 million in new commissions. Waddell & Reed has denied the accusations. Later, NASD ordered units of Prudential Financial, one of the largest insurance companies, to pay $9.5 million in restitution for repeatedly circumventing a New York regulation intended to prevent misrepresentations.

The regulators disclosed in late January that discoveries of widespread trading abuses in mutual funds had led them to evidence of similar trading in variable annuities. The NASD investigation into market-timing, Mr. Shorris said, is "moving along" and intensifying.

Mr. Brown said the New York attorney general's office was "very serious" about its market timing investigations. The S.E.C., Mr. Perone said, is "actively and aggressively" pursuing market timing investigations. It has demanded records from about 40 companies.

The regulators said they thought the improper trading in variable annuities was instigated by hedge funds. "But," Mr. Brown said, "I think a lot of insurance companies were open to it and let that be known to brokers and other intermediaries." Brokers and insurers earned increased fees from big market timers, the regulators say.

Many variable annuities impose no trading limits. That freedom has been a selling point, which the industry says was intended to permit investors to adjust their portfolios among, typically, 30 or so stock and bond funds without extra cost or taxes. In at least two cases, big investors have sued insurance companies that tried to prevent market timing. Insurance companies have begun taking steps to explicitly prohibit market timing.